Indebted Europe’s bond yields fall, equity markets suffer

Italian, Spanish, Belgian and Portuguese government bond yields were falling mid morning, albeit at a slower rate than yesterday, but Europe’s equity markets continue to be hit by fears as to whether there is a credible solution to the region’s debt crisis.

Peripheral debt yields, other than in Greece, continued to ease off this morning as Europe’s markets opened following another day of recent volatile trading activity on Monday.

Italy and Spain’s 10 year yields both declined in a sign the European Central Bank’s purchase of their debt to help stave off market fears over their solvency begun on Monday morning was taking effect. The rate at which those yields fell was slower than yesterday however, when at 15.15 GMT Monday the yield on Italian bonds had dropped off 13.4% since trading began that day, while the yield on Spanish bonds eased by 14.8%.

As at 11.15am GMT Tuesday 9 June, Italian 10 year government bond yields had declined 3.3% on their opening value, while the yield on Spain’s equivalent debt eased by 3%.

Two other markets engulfed in Europe’s sovereign debt crisis, Belgium and Portugal, also saw a slight decline in yields on their 10 year paper as Belgium’s fell by 0.7% and Portugal’s by 0.2%.

But Greece, the EU Member State at the heart of the debt crisis fears, saw a slight rise of 0.28% on its 10 year notes in a sign its yields may be creeping up again, despite declining sharply after European policymakers announced a further bailout for the beleaguered nation on 21 July.

Europe’s power engine Germany meanwhile told a different story, as normally low yields on its 10 year government paper increased to almost 2.4% as at 11.13 GMT.

Equity markets across Europe meanwhile continued to suffer following a poor performance since fears gripped global markets during and since trading on the afternoon of Thursday 4 July.

Core European stock indices including France’s Cac 40, Germany’s Dax and the UK’s FTSE 100 saw drops of 1.4%, 3.6% and 2.13% respectively as at 11.00am GMT.

The Brussels Stock Exchange also sank by 3.5%, as investors pulled out of equities despite being somewhat more favourably disposed toward Belgium’s debt.

At 11.36am GMT, the Athens Stock Exchange had dropped a further 1.8% after the market dipped below the psychologically important 1000 points mark yesterday, prompting its regulator to ban short selling of Greek equities for a two month period.

Chief investment officer at Russell Investments Erik Ristuben said falls in equity markets globally on Monday could be explained because “negative sentiment trumped solid fundamentals”. If sentiment-led markets continue, there is a risk the market will effectively talk itself into recession, he warned.





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